Has the government banned Futures Trading in some commodities?

The Finance Ministry has banned Futures Trading in a total of seven commodities related to the agriculture sector for one year. The commodities are; paddy (non-basmati), wheat, mustard seeds and their derivatives, chana, soya bean and its derivatives, moong, and crude palm oil.

According to the notification of the Finance Ministry, the move to suspend Futures Trading in these commodities is to limit or control inflation. Despite the government cutting the excise duty, the consumer price inflation has risen to a three-month high to reach 4.91% in November. Furthermore, the whole inflation for November also saw a jump to reach 14.23% from 12.545, with a double-digit rise for a straight eight months.

According to analysts, the ban was expected as the government was feeling high pressure from the opposition government because of rising inflation rates and food prices. As the excise duty cut didn’t provide much relief in lowering the prices, suspending Futures Trading was seen as the only way to control future prices.

According to SEBI’s notification, no new contract will be launched until further notice by the central authority, and no new position can be taken in the case of running contracts. The notification further said that the minimum time period of the ban is one year.

As the underlying asset for all the banned contracts is commodities, the ban is unlikely to have any effect on the overall equity market. However, the ban may slightly affect a company’s stock price whose business is entirely based on the banned commodities for Futures Trading.